Hanadi writes*
Most people think the refugee crisis looks like the photo below, but almost half of the world’s 10.5 million refugees reside in cities and towns, compared to a third who live in camps. In the Middle East specifically, the vast majority of refugees reside outside of camps in either urban or rural areas.
Rapid urbanization is one the most significant ‘mega-trends’ confronting our planet today. It is a multifaceted phenomenon affecting other global developments, such as environmental degradation, volatile commodity prices, and climate change. Notably, another effect of urbanisation is its impact on the refugee crisis, and the absence of work.
What differentiates urban refugees is that they are faced with a range of legal, financial, and cultural barriers in maintaining sustainable livelihoods. In most cases, they resort to joining the informal economy, where they compete with a large number of poor people for hazardous and badly paid work. Informal firms are extremely unproductive, and they are unlikely to benefit much from becoming formal. As a result, La Porta and Shleifer argued that the remedy for informality is economic growth.
It is common to hear the win-win refrain of turning the Syrian refugee crisis into a development opportunity, i.e., a solution that simultaneously alleviates refugees’ economic troubles and reinvigorate host states’ economies.
There are numerous challenges to integrating refugees into the formal economy, and non-enforcement of labor regulations is a big one. Such non-enforcement means informal workers lack permits to work or work outside their expertise. Such non-regulation allows displaced migrants into the country but only partly formalizes their status. Employers, as a result, offer lower wages.
The non-enforcement of labor market regulations has largely benefitted employers, who tend to be locals, and not the labor force, which is vulnerable to exploitation and denied rights. Refugees as a reserve army of labour mean employers have access to a flexible labour force whose weak rights make it easier to profit through systematic discrimination.
Many job sectors are further formally closed to non-nationals even though migrant workers may informally work in these sectors. Palestinians in Lebanon are unable to work in the public sector or in professions such as medicine, law or engineering, where membership of syndicates is compulsory. Such restrictions protect a domestic constituency and contribute to the perception of ‘too many’ (unemployed) refugees.
Labor regulations can be designed to prevent abusive, monopsonistic hiring practices. Labor inspections can improve workers’ rights and enhance firms’ competitiveness. A national minimum wage in Costa Rica produced higher compliance with minimum wages without reducing employment.
Stronger regulations can also encourage employers to offer training and invest in productivity enhancing measures. Minimum wages can prevent extreme poverty among workers and address inefficiencies that arise from non-competitive labor markets.
Bottom Line: Attempts to increase refugees’ formal labor market participation do not account for non-enforcement of labor regulations. We must rid ourselves of the misconception that most refugees reside in camps and integrate informal workers into the formal economy by enforcing labor regulations and opening closed sectors to qualified workers. The real win-win will come from more jobs, higher productivity, and less burden on humanitarian agencies.
* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).
Hanadi, thank you for the insightful blogpost. I enjoyed reading it very much. I think it does a great job at pointing out how misconceptions can lead to consequences such as policy inaction, and does a great job at linking the contextual factors with policy solutions.
Given how this non-enforcement of labour market regulations largely benefit employers (as they are able to hire workers at lower costs and have a ‘reserve army of labour’ at their disposal), I was wondering whether there are large lobby-like groups that shape political discourse and inhibit any formal labor regulations to take place. In other words, is the political inaction – let’s say in Lebanon – largely influenced by individuals’ desire to keep the labor regulations at the status quo since they benefit from them, or is it because of a genuine misconception about what the value of these refugees could add to the market?
Thank you for your question! Unfortunately as with most economic questions, there is no straight up answer to this. It’s a little bit of both. Further insight into Lebanons history will probably provide some clarity regarding both the individual misconceptions held by the citizens in Lebanon, and the upholding of the status quo. The ethno-religious fabric present in Lebanon is directly reflected in the political sphere, with a so- called a corporate consociational system . This requires all religious groups to be tied to political positions to ensure fair representation of all with laws, requiring the president to be a Maronite Christian, speaker of parliament to be a Shi’ite Muslim, and the Prime minister to be a Sunni Muslim.
Historically, Lebanese politics can be characterized as having been in a constant state of emergency due to stronger neighbouring forces (Syria/Israel) and as facing a constant risk of becoming the site of a proxy war between wider regional powers. Large political divisions regarding Lebanon’s history has led to a current policy paralysis. Policy paralysis occurs when a government is unable to implement/create policies because of a lack of commitment on part of the government and an inability of the government to reach a consensus over the correct form and the timing. However, this is further exacerbated by the population who fear change. This fear of change has been caused by limited information leading the population to believe that more refugees leads to less opportunities for the domestic population, and the misconception that Lebanon is simply a transit state for refugees. The Lebanese government has had limited motivation and ability to create policies which would appease all the different domestic sects. So instead, the government has resulted to implementing ad hoc policies that are incapable of changing the status quo.